Posted by: Josh Lehner | February 20, 2020

Food for Thought: Shifting Drivers of Growth?

Like the nation overall, Oregon is transitioning down to more sustainable rates of growth. Job gains are roughly in-line with what underlying demographics suggest the state needs to hold the unemployment rate steady. Eventually the cyclical drivers of growth will slow further and gains will be driven by productivity and the number of workers.

Historically Oregon’s industrial structure, productivity, and ability to attract and retain young, working-age households has driven faster growth than the nation overall. Today Oregon continues to outpace the typical state in terms of GDP and income, but not employment. Local job growth is matching the U.S. This is one indication that the mix of those long-run drivers of growth may change in a mature expansion, or at least in this mature expansion. We do not know what the eleventh year of an expansion looks like, much less the twelfth or thirteenth year, because the U.S. economy has never been here before.

Our office spent much of 2019 digging into these sources of long-run economic growth: labor force and productivity. We know that population growth is slowing today, and retirements seem to have accelerated. This means Oregon’s labor force is growing slower than expected due to both smaller inflows and larger outflows.

Migration may rebound, driving Oregon’s stronger labor force gains as usual. However, it may not. And should this current pattern continue, it means Oregon will need to rely on stronger productivity gains to grow at a faster rate than the nation overall. If this happens, then we can reasonably expect the blue lines in the chart above to remain positive, even as the red line flattens. While our office tends to focus on the macro, big picture perspective, these gains would be driven at the firm, worker, and/or individual level. Even a tenth or two of a percent per year compounds over time, driving stronger long-run growth.

Now, it is certainly possible this shift in drivers of growth will not occur. Oregon’s growth advantage across these different metrics tend to move together over the business cycle. The question is whether or not they shift, or even diverge in a mature expansion. Our office is closely watching migration, productivity and income growth in the state. One way or another, we’re about to find out the answer to these questions in the year(s) ahead.

For more on productivity, follow the link above or see our latest forecast where we have special sections on this at the statewide and regional levels.

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Posted by: Josh Lehner | February 12, 2020

Oregon Economic and Revenue Forecast, March 2020

This morning the Oregon Office of Economic Analysis released the latest quarterly economic and revenue forecast. For the full document, slides and forecast data please see our main website. Below is the forecast’s Executive Summary.

U.S. economic growth has settled in around its potential in recent quarters. The outlook is stable and the risk of recession is receding. The trade war deescalated with the signing of the Phase One trade deal between China and the U.S. and financial markets calmed following the Federal Reserve’s shift in policy.

Local and national strength lies in the labor market where ongoing job gains are more than enough to meet labor force and population gains. Encouragingly the more-plentiful, and better-paying job opportunities are generating a supply side response. Workers continue to come off the sidelines and join the labor force.

One risk to the U.S. and global outlook is the potential human, social, and economic impacts of the coronavirus. Economically the worst case scenario is fears over the virus are a coordinating event that serves as a recession catalyst. Other direct impact channels, however small here in the U.S., include supply chain disruptions, lower volumes of trade, reduced Chinese tourism, and increased financial market uncertainties.

Oregon’s stronger long-run economic growth historically is tied to migration and faster working-age population gains. The primary risk to the local outlook is the available labor supply, particularly as recent population estimates indicate migration is slowing more than expected. To the extent Oregon’s labor force and employment gains no longer outstrip the typical state in a mature expansion, the state must rely more upon its industrial structure and productivity gains to drive faster overall economic growth.

While growth has slowed across many economic indicators, the same cannot be said for Oregon’s primary sources of tax revenue. They continue to outstrip the performance of the underlying economy. The primary forecasting challenge for the current biennium is to determine what portion of the recently strong tax collections is due to temporary factors that will fade away.

Even without the onset of recession, revenue growth is facing major headwinds during the current biennium. State and federal tax policies, a big kicker refund and slower economic growth will all weigh on General Fund revenues in the near term.

The longer the revenue boom persists, the more likely it becomes that permanent factors are playing a significant role in boosting tax collections. As such, revenue estimates for the current biennium have been steadily revised upward over the past two years.

Even so, given that job gains and population growth have both taken a step back, some moderation in state revenue growth is likely going forward. It is also likely that the unprecedented surge in collections that occurred during the last tax filing season was due in part to taxpayers shifting their payments response to federal tax law changes, and other temporary factors.

Together with state and federal tax law changes, the uncertain economic outlook is currently injecting a considerable amount of risk into the revenue forecast. Both April tax filing seasons are yet to come this biennium, leading to a wide range of possible outcomes. Despite this uncertainty, this forecast reflects a relatively stable outlook, with General Fund collections increasing by just over one percentage point.

Fortunately, Oregon is better positioned than ever before to weather a revenue downturn.  Automatic deposits into the Rainy Day Fund and Education Stability Fund have added up over the decade-long economic expansion. Oregon is expected to end the biennium with nearly $3 billion in reserves set aside, nearly 14% of the budget.

See our full website for all the forecast details. Our presentation slides for the forecast release to the Legislature are below.

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Posted by: Josh Lehner | February 5, 2020

Aging Oregon Part 3: Income and Tax Revenue

Welcome back to the occasional series where our office will explore some of the demographic, economic, and societal impacts of an aging population. Previously we looked at overall demographic trends, and the generally improving health of retirees. Future posts are set to examine the impacts on housing markets, retirement homes, and some public policies. As always email me with your thoughts on the topic and other aspects to explore further. Today we dive into what the aging population means for personal income and public sector tax revenues, although the same trends will also be seen in sales of private sector businesses.

For the past decade, our office’s forecast has always included something along the lines of the following when discussing the extended outlook.

Longer term, revenue growth in Oregon and other states will face considerable downward pressure over the 10-year extended forecast horizon.  As the baby boom population cohort works less and spends less, traditional state tax instruments such as personal income taxes and general sales taxes will become less effective, and revenue growth will fail to match the pace seen in the past.

The key here is that the vast majority of people have less income in retirement than during their peak working years. Retirements in Oregon today are somewhere around the high water mark but will remain large in the decade ahead. This translates into a whole lot more Oregonians with relatively lower incomes who will spend less as well.

One key issue is that the composition of income also changes considerably. During one’s prime working years, wages account for 80-90% of income. In retirement, the combination of pensions, IRAs, investments, and social security account for 80-90% of income. Given that Social Security is not taxed in Oregon, we know that taxable income for retirees declines even further than overall income. Roughly speaking, Oregonians in their 70s have incomes that are around 30% lower than Oregonians in their prime-working and peak-earning years. However if you exclude Social Security, a rough estimate of taxable incomes are more like 50% lower.

Now, it’s important to point out that Oregon tax collections will continue to grow. Tax liability among retirement income is forecasted to more than double in the decade ahead. However, the demographic impacts here do act as a headwind on overall growth. Retirees have lower incomes, and we will see considerably more retirees in the years ahead. Oregon, unlike many states in the Northeast or Midwest, continues to see net in-migration among working-age households, which buoy the regional economy and will drive income growth and tax collections.

Speaking of retirement and incomes, we know that both incomes and wealth are particularly concentrated. Our office previous looked at capital gains, but there is also an age component here. Even for those with a lot of wealth, much of it is generally earned or at least accumulated over one’s lifetime. Net worth for households 75 years and older is about three times that for those in their prime working-age years. For most households this wealth is home equity with a little bit of financial investments, but the higher up the distribution you go the real sums of wealth are not in housing but in investments and business equity. Given asset markets, Oregon’s strong economic growth, and demographics, estate tax collections continue to be quite strong locally.

For those a bit lower in the stratosphere, other sources of income and policies matter quite a bit. As we dug into before, transfer payments are a growing share of personal income across the state. In many of our rural communities, transfer payments already account for 1 in 3 dollars of income. Social Security in particular is a big reason why. It’s a little convoluted, but the next chart tries to show how important Social Security is for the vast majority of older Oregonians. Essentially, 1 in 3 seniors in the state rely entirely on Social Security; they have no other source of income in retirement. And Social Security accounts for more than half of all income for more than half of all seniors in the state.

The other key issue is that lower incomes in retirement also means less spending which directly translates into fewer sales for business and less tax collections. Overall consumer spending drops by about 25% in retirement relative to one’s prime working-age years. And the older one gets, the larger the drop. Spending is more like 40% lower in one’s 70s and 80s.

A complicating factor is that the composition of items purchased also changes. Older individuals spend a larger portion of their income on items like food, housing, and medical care, and considerably less on big ticket durable goods like cars, computers, and couches. The former are not generally subject to retail sales taxes, while the latter are. This shift in consumption, plus retail deflation are the major reasons why retail sales taxes have eroded in recent decades and are expected to continue to so in the years ahead.

This also highlights why it was important from a policy perspective that Oregon’s new corporate activity tax (CAT) applied to firms selling both physical goods and services, if they meet the threshold of $1 million in Oregon sales. Oregon’s CAT should not suffer the same structural fate as general retail sales taxes have.

Just as the demographic-related drop in income and spending impacts all non-health care sectors of the economy, it will also impact all of the different public sector revenue streams. This is not just a personal income or sales tax issue. Other Funds — which are not General Fund or Federal Funds — are also impacted considerably. This include things like licenses and fees (DMV, fishing, hunting, etc), gas taxes, college tuition, alcohol and tobacco sales, and the like. Consumer spending on all of these different items will continue to grow in the decade ahead due to economic gains and in-migration, but the underlying growth rates will be lower than previous periods due to the aging of the population. These changes will not occur overnight and are already here to a certain degree. However the demographic shifts will certainly continue to impact growth for at least the next decade.

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Posted by: Josh Lehner | January 24, 2020

What Drives Cost of Living Differences? (Graph of the Week)

We know the cost of living varies considerably across the country. It can even vary significantly just across town. But what really drives these differences? In a word, housing. Sure, the price of going out to eat can vary by a few bucks per plate here and there, plus we know haircuts and accounting services differ as well. But as seen in this edition of the Graph of the Week, prices across the country for most goods and services fall within a range that varies by 20 percent or so. Of course that’s nothing to sneeze, especially if incomes don’t keep pace. However the variation in costs for most goods and services pales in comparison to the differences seen in housing costs which can vary by 200 percent.

Housing represents a big component of consumer spending and inflation overall of course. In Detroit and St. Louis housing accounts for around 40% of the local CPI basket, while it is nearly 50% in New York and San Francisco. Before BLS murdered the Portland-Salem CPI, housing was 45% of the basket, on par with Denver and Seattle.

Part of the reason housing costs vary so much is demand, a lot of people want to live in the large urban areas with strong economies and a high quality of life. However we also know a key reason is the low levels of supply or lack of new construction. As Tim Duy and I wrote a few years back, expensive cities don’t built much housing, for a variety of macro reasons in addition to local policies.

That said, we need to keep in mind that housing isn’t the only thing impacting household budgets. Non-housing items account for 50-60% of the CPI basket and more like 80% of consumer spending overall. So even as we spend most of our money elsewhere, it is clear that housing differences are the key driver behind the overall cost of living.

Finally, as an aside, product availability and not just prices matter when it comes to quality of life as opposed to cost of living. If you are craving Peruvian food or northern Indian food or the like, those types of restaurants may not be in every city. This is true even if the number of restaurants or number of restaurants in a broad category like Asian is the same. This added wrinkle matters at the personal level and may affect how you feel about a certain city, but will definitely be missed at the macro level when we look across the country using standard economic measures.

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Posted by: Josh Lehner | January 17, 2020

Fun Friday: More Marijuana Border Effects

A border effect can arise when neighboring jurisdictions have different rules, regulations or tax rates for the same industry or product. Border effects are a well researched topic and evident at the local, regional, and international levels. They are especially common among vice industries.

In digging into new county marijuana data from our friends at OLCC and the Washington State Liquor and Cannabis Board, four main findings stand out.

First, looking at regional sales in Oregon per adult reveals patterns both expected and unexpected. Regions with the largest sales relative to the size of their local populations are generally located along state borders and/or have large tourism industries where visitors increase demand.

What was most surprising, to me at least, isn’t the top of the chart but the bottom. The Rogue Valley (Jackson and Josephine) is where Oregon’s marijuana historical strength lies. And yet despite the industry’s roots, and being on a border with an interstate highway, sales are the lowest in the state. This could be a difference in the business of the industry vs consumers of the industry. But it does keep with patterns I first noticed in the Measure 91 vote back in 2014. Jackson County votes in favor of legalization but by a slim majority (53%). Josephine County on the other hand voted against M91 albeit by 2 votes, but still.

Update: A friend of our office raises an interesting point. It is possible that the lower retail sales in the Rogue Valley is in part due to the fact so much is grown there that they do not have to go into stores to purchase, but rather buy/barter/trade with their neighbors or their neighbors’ neighbors.

Second, even if we expect — and get — border effects, the sales in counties along the Idaho border were much stronger than I anticipated. Obviously recreational marijuana is not legal in Idaho, but even after throwing the data into a rough border tax model that accounts for incomes, number of retailers, tax rates and the like, there remains a huge border effect. Roughly speaking, about 75% of Oregon sales and more like 35% of Washington sales in counties along the Idaho border appear due to the border effect itself and not local socio-economic conditions. Furthermore, and in things you cannot make up, Oregon sales per adult along the Idaho border are 420% the statewide average.

Wait, there’s even more Idaho border effects at play which is finding #3. Initially the closest retailers to Idaho were located in Baker County, however that changed last summer. There are now 3 retailers in Ontario (Malheur County) which is right at the border. These new retailers are 30-60 minutes closer each way to any potential customers traveling into Oregon along I-84 than the retailers in Baker County. As one might expect, as these new stores in Malheur County came online, sales plunged in Baker County by around 80%. This is a knock-on impact of the border effect. Proximity or distance traveled matters as do product availability, prices, and taxes.

Finally, the last finding decomposes the differences in sales seen along the Oregon-Washington border itself. Overall sales are 16% higher per capita on this side of the Columbia than the other. The largest differences between the states I see is the number of stores (lower in Washington) and taxes (lower in Oregon). This speaks to product availability and the final price to consumers being key driving factors in consumer spending patterns, which create much of the border effect.

Even so, we see considerable variation along the Oregon-Washington border.

Out near the Pacific Ocean, sales in Clatsop County significantly outpace sales in neighboring Pacific County, WA. Clatsop has nearly twice the population but more than three times the overall sales in part due to higher incomes, higher reported marijuana usage rates and considerably more retailers (17 vs 3).

Similarly, Hood River and Wasco counties significantly outsell Klickitat County, WA across the river in the Gorge. The Oregon side has twice the population, four times the sales and many more retail outlets (10 vs 3).

The one region where the patterns differ is out east. Now, Umatilla County has solid sales, but neighboring counties like Sherman, Gilliam and Morrow do not have any retailers, and weigh on the regional figures. On the other side, both Benton (Tri-Cities) and Walla Walla counties have solid sales themselves. All told, sales per capita are pretty equal in eastern Oregon and Washington. Some of this will be due to population and where consumers regularly travel in the first place. Both Tri-Cities and Spokane are regional hubs with more stores of all types than communities in surrounding areas.

Bottom Line: The border effect is real. Both Oregon and Washington see a clear impact in higher recreational marijuana sales along the Idaho border than can be explained by local socio-economic factors. Now, this does not mean that all of those larger sales are neccesarily to Idahoans. It could be other customers maybe traveling from further away or from elsewhere within our state who are traveling through.

All told, recreational marijuana sales continue to increase and are expected to do so in the decade ahead. Our office’s forecast calls for sales to grow approximately 80% over this time period as incomes grow, the state’s population increases, and marijuana becomes more socially acceptable and usage rates rise.

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Posted by: Josh Lehner | January 9, 2020

Friday Beer Thoughts and One Last 2020s Prediction: Closures

One last prediction for the 2020s: Oregon will see more brewery closures. In fact we are likely to see a dozen or more closures every year in the decade ahead. This is mostly due to the fact that Oregon has seen considerable growth in the number of breweries in the past 10-15 years. More breweries means more potential closures.

Statistics show that running a business is hard. About 20% of new companies fail within their first year. Only 50% survive more than 5 years. Clearly, start-ups face long odds and successful firms have overcome a lot.

That said, as our office has shown before, Oregon’s brewery closure rate is about half that of the overall economy. Regardless of whether the closure rate remains very low, or it rises to match the average closure rate, Oregon will see more breweries fold in the coming decade, which brings us to this edition of the Graph of the Week.

These projections are based on business survival rates by age of firm. There is not a ton of variation in these survival rates when looking at Oregon versus the U.S. or by specific sector. Any sort of sensitivity analysis I did here does not yield significantly different results.

The chart above shows 3 scenarios based on different assumptions. The bottom end of the error bars assumes Oregon breweries continue to close at half the rate of all businesses. The top end of the error bars assumes Oregon brewery closures jump overnight from low closure rates to average closure rates based on the age of the business. The blue bars are a middle scenario where over the course of a handful of years, the Oregon brewery closure rate, especially for established breweries, gradually rises until it matches the overall average closure rate.

As one can see, under any of these scenarios, the number of Oregon brewery closures in the decade ahead will increase. However there are at least two other factors in play here when discussing the health of the Oregon beer industry overall.

We know that the industry is growing slower and feeling more stress. Breweries that rely on tap handles and grocery store shelf space are feeling the biggest impacts. Aaron Brussat over at the New School has a rundown of closures in 2019. While the number of brewery closures last year is in-line with recent years, the pain is felt more broadly with a few cideries, beer bars, bottle shops and the like also closing. See Beervana Buzz’s Pete Dunlop who continues to be on the forefront of discussing these trends and underlying issues within the industry. Now, none of the projections above incorporate any sort of industry correction or potential bubble, so there is certainly downside risks to outlook if either of those happen to materialize.

Finally, closures are just one end of the pipe. Brewery openings in Oregon continue to outnumber closures, so the industry overall is growing. To date, even with the hand wringing, we have yet to see any real increases in the brewery closure rate, which is what matters for industry health. There is always a given amount of churn in the economy. So far it is quite low for Oregon breweries. A reasonable outlook would call for this closure rate and the amount of churn to increase in the decade ahead. This should be expected, even if there are no broader industry issues or concerns.

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Posted by: Josh Lehner | January 7, 2020

Predictions for the 2020s

Welcome to a new decade. The 2020s should be the best decade so far in the new millennium, not that the tech bust/housing bubble/Great Recession and its aftermath puts up much of a challenge, but still. While the most remarkable economic trend of the 2010s was the lack of a recession, we know the business cycle will strike again at some point. It is certainly possible we go another decade without an official recession — Oregon did go 20 years without a major hit to state revenues between the early 80s recession and the dotcom bust — but I’m not necessary willing to bet on that today. What I am willing to bet on are two big changes we will see in the decade ahead. These aren’t new changes per se, but the aging of the Baby Boomers and the Millennials into different points in their life cycles will have big economic impacts.

First, at the end of this decade all Millennials will be in their 30s or their 40s. It is much more likely they will have their own kids than be the punching bag about how kids these days don’t walk uphill both ways, or something. But this transition from one’s 20s to their 30s and 40s brings about big shifts in one’s life. In the decade ahead, Millennials will fully transition through their root-setting years. This is when you settle down, begin your career in earnest, get married, have kids, buy a house and the like. And while long-run societal shifts means young adults today are getting married later, having fewer kids and at older ages, these big picture milestones are still common even as single-person households are on the rise.

So what does this mean for the 2020s economy? It means there is a big demographic tailwind for housing, and homeownership in particular. Two key demographics for housing and related industries are first-time homebuyers and young families. Even in today’s housing market, when I’ve dug into the Census data it shows that Oregonians are 50/50 in terms of owners/renters by their mid-30s. As the younger Millennials age into their 30s in the years ahead, this will increase demand for homeownership.

If we step back and look at overall housing-related spending, it peaks in one’s early to mid-40s. This spending isn’t just mortgages and property taxes, but also housekeeping supplies, appliances, furniture and the like. This time period also coincides with many people’s lives when they do have kids living at home, and maybe some even trade up and buy a larger house. People in their 40s also have higher rates of employment and rising incomes at this point in their life cycle, so they spend more money on a lot of categories, housing included. Starting next year, the oldest Millennials will turn 40 and the number of 40-something Oregonians will rise throughout the coming decade. Total housing expenditures should grow faster than the overall economy as well.

The second big shift we will see in the 2020s will be the growth among Americans and Oregonians 75 years and older. We know economically what matters most is that transition from working to retirement. Our office has dug into the potential labor force and number of retirees quite a bit in recent years. However we’re right around peak retirements today. While retirements will remain large in the decade ahead, what will be new, and will reshape the economy will be the growth in the 75+ population. This is why our office is currently working on our new research series, Aging Oregon. Here we will explore the overall demographic trends, improving health, impacts on personal income, tax revenues, housing markets, retirement homes, their workforce needs, and the like. Stay tuned for more as we continue to explore these impacts.

We start the dawn of a new decade on strong economic footing. Rarely has Oregon experienced a better economy. However, we know the business cycle will strike again at some point, even if the outlook remains solid right now.

If we step back and look at what big shifts we are likely to see in the decade ahead, demographics are easy to point out. The aging of Millennials through their root-setting years and Baby Boomers fully into retirement stand out in advance. These transitions will have big, long-run impacts on the economy.

In terms of uncertainty in the decade ahead, the biggest demographic unknown are migration flows. Expectations are that young, skilled households will continue to vote with their feet and move to Oregon, however when compared to births, deaths and the aging of the current population, migration, by far, has the most uncertainty.

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Posted by: Josh Lehner | December 31, 2019

Economic Trends of the 2010s (Graphs of the Decade)

Economically, the 2010s were a disappointment. Now, the U.S. economy went the full 10 years without a recession, a first in history. However we began the decade at the bottom of the worst recession in a long time. As such much of the decade was about regaining the lost ground. That means we spent most of the decade below potential, with a slack labor market and the like. It is true that today’s economy is strong, and that should be celebrated. Rarely has Oregon seen better economic conditions than we do today. However today’s strength alone does not negate nearly a decade, actually nearly two decades of general weakness. That’s why, when taken as a whole, the 2010s were an economic disappointment.

Beyond the general business cycle fluctuations of starting off the decade in bad shape and ending it in good shape, three trends stand out. I’m submitting these as my Graphs of the Decade to best understand the economy of the 2010s.

First, household incomes are setting new record highs on an inflation-adjusted basis. This is not just about recovering the losses from the Great Recession. Rather the importance is putting Oregon’s income gains in perspective relative to the nation and relative to recent history. For the first time in at least 50 years, Oregon’s median household income is higher than the U.S. And assuming another solid year of income gains in 2019, Oregon will end the decade with inflation-adjusted household incomes somewhere around 13% higher than they ever have been before. This means our vantage point today should be high enough to finally break through the malaise of stagnant household incomes in recent decades, even after the next recession, whenever it comes. This potential development is massive, and largely due to the strong labor market in which we are ending the 2010s.

Encouragingly we know growth has now reached every sector of Oregon’s economy, every region of the state, and all populations as evidenced by the narrowing racial poverty gap. That said, we also know the growth in the 2010s has been uneven across the state. Our own experiences vary based upon where in the state we actually live. The second big trend of the decade is the growth in the urban-rural divide.

Economically, the Great Recession was an equal opportunity disaster. However the nation’s biggest, most diverse regional economies were the first to return to growth and recover. Even beyond these general patterns, Portland’s growth has been transformational as it outpaced all but a few other metro areas in terms of things like increases in educational attainment, household income gains, and growth in the number of high-wage jobs.

The state’s other metro areas spent a few years at the bottom of the Great Recession with no growth. However as the housing market recovered, migration flows returned, and public sector budgets were repaired, overall economic growth resumed. Keep in mind that Bend and Medford experienced two of the worst housing bubbles and busts in the nation, so they began the decade in very bad economic shape.

It took another couple of years for these patterns of growth to reach the entire state. Rural Oregon overall basically spent half the decade seeing no gains but has seen solid growth the past handful of years. That said, just 9 of Oregon’s 23 rural counties have more jobs today than they did last decade. Encouragingly, rural Oregon has very few places in permanent demographic or economic declines relative to patterns seen throughout the country. However, even with decent to solid growth in rural Oregon overall, the state’s urban-rural divide increased in the past decade.

Finally, the third major economic story of the 2010s is housing affordability, which worsened throughout much of the decade. We know this impacts all corners of the state and populations. It is both a near-term concern in that it makes it harder for our neighbors to make ends meet, and it is a long-term risk to the outlook if young, working-age households cannot afford to move here in the first place. And while much of the attention is paid to rising housing costs, we know they are the symptom and not the cause of the disease. The chief underlying cause is the ongoing low levels of new construction this decade. On a population growth-adjusted basis, Oregon built fewer new housing units this decade than we have since at least World War II. With data going back nearly 60 years, never have we built fewer new units on a sustained basis than we did in the 2010s.

Update: This received quite a bit of attention. Please see our previous look at how Housing Remains a Macro Issue for more on these trends. They’re not just Oregon-specific. And the Oregon Legislature recently passed bills trying to encourage housing supply.

All told, the 2010s were a bad economic decade. We spent much of the past 10 years simply digging our way out of the Great Recession, which means we underperformed overall. That said we are ending the decade in great shape and with an economy that has rarely been better. It’s a low bar to overcome, but taken as a whole, the 2020s should be better.

Stay tuned, I’ll be back in the New Year with two big picture predictions for the 2020s.

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Posted by: Josh Lehner | December 18, 2019

Aging Oregon Part 2: Improving Health

Welcome back to the occasional series where our office will explore some of the demographic, economic, and societal impacts of an aging population. Previously we looked at overall demographic trends, while today we dig into our generally improving health. Future posts will examine the impacts on income, tax revenue, housing markets, retirement homes, their workforce needs, and the like. As always email me with your thoughts on the topic and other aspects to explore further.

Father Time is undefeated. At some point we all pass from this life to more life. And we know statistically speaking the probability increases as we age. While this can be uncomfortable to talk about — my family just celebrated my grandma’s 95th birthday! — it will become increasingly common in the decades ahead due to our demographics.

However, the good news is that our health overall has improved. All cause mortality is down 40-50% for Oregonians in their 50s, 60s, and 70s. But we have seen less improvements among our oldest cohorts. As the saying goes, 70 really is the new 50, but 85 is still 85.

Importantly, it’s also about the quality of the life we live and here we have more good news. The share of the population with a self-reported disability is on the decline based on available Census data. So not only are more of us living longer*, we’re generally in better health while we’re alive. These decreases in self-reported disabilities are seen across the various types, including self-care difficulty.

And it’s here, when discussing disabilities and self-care difficulty, where we really get to the intersection of the impact of an aging population and the economy overall. Our previous research showed that downsizing isn’t really a thing. People clearly prefer to age in place, up until they pass onto more life or move into some sort of retirement home. As an example, my grandma lived in her house until she was 90 before she moved into an assisted living facility closer to my aunt and cousins. As the chart below shows, individuals with a disability are significantly more likely to live in group quarters than in a traditional housing unit. Groups quarters are dormitories, prisons, nursing homes and the like. As one ages, of course, nursing homes are the predominant type of group quarters we live in.

Overall as our society has an increasing number of friends, relatives, and neighbors entering into similar points in their lives in the decades ahead, these trends can have big impacts on the housing market, nursing homes and the workforce needed to take care all of us. I haven’t finished crunching all the numbers but the next couple of posts in the series will focus on these topics. They may not be fully ready until the New Year. But I hope to be able to help put these impacts in perspective and to figure out how big of a deal they are, economically-speaking.

* U.S. life expectancy has increased considerably over time, but it has flattened out in the past decade and even declined a bit in recent years. Some of that is due to things like the Deaths of Despair pushing back on improving health and medical advancements. You can also see the plateauing of mortality among the 55-64 year old demographic in the chart above. So while health has improved and life expectancy risen, it’s not all rosy.

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Posted by: Josh Lehner | December 13, 2019

Initial Claims Remain Low (Graph of the Week)

Recently our office has brought up initial claims for unemployment insurance a few times, including at the most recent forecast release. The reason was Oregon’s initial claims have been running higher in 2019 than in 2018 throughout much of the year. Now, the increases were more like 5% increases relative to last year and we typically see jumps of 10-20% in the year leading up to a recession. So the increases were a concern, but not yet a red flag. The good news, as shown in this edition of the Graph of the Week, is initial claims in the past month have improved and are now down on a year-over-year basis. Recent readings of initial claims are at historic lows for this time of year with data going back to 1987.

One outstanding concern is that the recent layoff announcements, including food manufacturing closures in the Willamette Valley, have yet to hit the data as the layoffs are recent, with some still to come. We will continue to watch initial claims closely because they are one of the best leading indicators available. Until initial claims increase significantly, the labor market should continue to grow and the expansion endures.

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Posted in Employment, Graph of the Week, Leading Indicators | Tags: , , , , , ,

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